Before a packed room of ambassadors from developing countries, diplomats, European Commission officials and NGO representatives, an interesting high level panel on the benefits and pitfalls of budget support aid took place in Brussels on 13 July. The event, organised by Oxfam and the Overseas Development Institute (ODI), took place at an opportune time when the future of the European Union’s development policy is in the spotlight.

The EU is one of the world’s largest providers of budget support – the method through which development aid is provided directly to developing country governments, rather than to specific projects. But today, EU budget support is at a crossroads: despite being described by the European Consensus on Development (2005) as the ‘preferred aid modality’ and having strong backing from EU governments such as France and Portugal, it continues to divide opinion in high places.

Speaking at the event, Andris Piebalgs, the European Commissioner for Development, reaffirmed his, and the Commission’s, support for this aid modality.

When asked to look ahead to predict the share of budget support given in 2016-17, he answered “we roughly have 25 percent and I would say half (50%), perhaps even more”. He pointed out that the Commission is undergoing a transition towards the “differentiation of aid” that will look to assist countries like Sierra Leone more and assist countries like India and China less “where I think that budget support is not a proper form of support”.

Addressing its advantages, Mr Piebalgs said it provides support to the elected representatives of people upon whom their citizens’ hopes rest, carries no overhead costs (“we do not lose money in delivering [this type of] aid while all other modalities have this weakness”) and is “by far the quickest way to make the changes in the country”.

However, he admitted it suffers from a lack of transparency and this is damaging its perception in the eyes of European citizens. “There is budget support and then there are presidential jets being brought,” he said, “I could understand there was a need for it but I could only justify this in front of European citizens if I could say this brought 20,000 kids to school, or the government trained 7,000 new teachers.”

“Budget support is very difficult to describe in visibility matters and get people enthusiastic about it,” he continued. “We still need to find a way how to make it not only transparent but also so visible that each person in society has an interest and really could say this money supports a budget and we achieved something in particular”. He stressed that roles of organisations such as Oxfam and ODI and event like this one were crucial in this regard.

For Dr Samura Kamara, the current Finance Minister of Sierra Leone, budget support has produced results and remains vitally important for the development of countries such as his own. However, he confessed his country perhaps “have not done enough to prove to donor countries where their money has been spent and the results achieved”.

While lamenting the volatile nature of this funding from donor countries, he said recipient countries have to understand the financial pressures donor countries are facing. However, “I strongly believe that if we come out and clearly explain that we have a strong partnership, I believe we will be able to resolve the problems because it is also a question of relevance and legitimacy.”

Also speaking at the event, Edward Mountfield, Vice-President of the World Bank’s Development Policy Lending facility, said the World Bank has maintained a commitment to using budget support as a mechanism for policy engagement in the face of strong criticism of conditionality. And it has delivered results: countries receiving budget support have seen better in primary enrolment rates and reductions in infant mortality. In such countries primary school enrolment has increased by 14.8% between 2001 and 2006 compared to 9.1% in non-receiving countries.

Senior Research Fellow at ODI Marcus Manuel presented evidence of global trends in budget support provision, recent proof on its effectiveness, and what he considered to be the current challenges; those of conditionality, better results and politics. He said that general budget support (GBS) has historically only been a small proportion of all aid flows to lower income countries and that this amounts to less than 5% of all aid flows. He also addressed the extreme diversity between donors since some countries do not use GBS at all, whereas the World Bank allocates 20 to 25 percent of its aid in GBS rising to some 30 to 35 percent when SBS is added to it.

Dr Friedrich Kitschelt from the German Ministry of Economic Cooperation and Development reminded the audience that Germany remains “not as enthusiastic about budget support as others” but is “always amongst those giving budget aid”.

For him, the German policy is always to look at this budget support instrument according to a “basic slogan: form following function – which boils down to efficiency, effectiveness, impact […] this instrument has to prove its efficiency and effectiveness, and it has to prove that it indeed can achieve the objectives that we attach to it”. He said comprehensive reforms are needed, including “better transparency, stricter and more coordinated criteria on how to apply and where to apply, and guidelines for under which conditions to apply budget aid”.

Completing the panel was Malawi-born Helen Magombo, Oxfam’s policy advisor on aid effectiveness. While her home country has benefited from budget support aid and she recognised it is not a perfect instrument, she said “there is room for improvement, and we should be debating what to improve rather than whether to use it”. She proposed increasing the involvement of “civil society, parliaments and the role of the media in terms of reinforcing domestic accountability other than the internal government mechanisms” and asked for more transparency to enable them to play their role of watchdog. She also called on the European Commission to promote the MDG contracts, a type of long term (six years), predictable (one mid-term review) budget support, based on MDG outcomes. Currently these are being awarded to only eight countries.

Looking ahead to the end of the year and the United Nations High-Level Forum on Aid Effectiveness to be held in Busan (South Korea), she said her worst fear is that nothing will emerge from the meeting, that aid effectiveness will not even be discussed, and that budget support will not be included in one of the key aid modalities to be continued. But for Commissioner Piebalgs, the outlook was somewhat brighter.

He also thanked Oxfam for its “fantastic work on budget support” commenting “I would say that without your support we would be in a much more difficult situation today and the discussion today would be quite different”.

In its 2008 report “Fast Forward”, Oxfam’s own research shed light on the positive results budget support aid is producing around the world. It showed that in eight of the countries that receive some of the largest amounts of the Commission’s general budget support, government spending on education has increased by nearly a third (31 percent). In all but one (Rwanda), this resulted in an increase in the number of children enrolled in primary school, and in Madagascar, the proportion of children enrolled in primary school increased from 69 percent in the period 2001 to 2002, to 92 percent in 2005. There were similar success stories in the provision of healthcare. Of the top ten recipients of EC budget support, seven increased their public health expenditure on average by 46 percent between 2001 and 2004. In all seven of these countries there has been an increase in life expectancy, and in five of them there has also been a fall in maternal mortality rates.

Oxfam International’s European Union office in Brussels works to influence key decision-makers to ensure that EU policies affecting poor countries have a far reaching, positive impact on the lives of those most in need.

About: Oxfam's EU Advocacy office in Brussels

Oxfam International’s European Union office in Brussels works to influence key decision-makers to ensure that EU policies affecting poor countries have a far reaching, positive impact on the lives of those most in need.

Our work spans numerous policy areas including food security, climate change, development policy and finance, and the provision of humanitarian assistance to victims of conflicts and natural disasters.

The EU office works together with Oxfam’s eight European affiliates in France, Germany, the United Kingdom, Ireland, Italy, Spain, Belgium and the Netherlands. We also join forces with allied NGOs and civil society organizations.